Secured Loans
What is a secured homeowner loan?
A secured homeowner loan allows you to borrow a lump sum of money against your property. It means the loan is secured for the lender, and they could repossess your home if you’re unable to pay back the debt. They’re sometimes known as home equity loans, second mortgages or second charge mortgages.
You’ll need to make regular monthly repayments throughout the term of the loan, which could last anywhere between 1 to 35 years. If you don’t make the repayments, your home could be repossessed to pay off the outstanding debt.
It’s also worth noting that some homeowner loans charge an arrangement fee and may have other set-up costs.
With a secured homeowner loan:
- You can borrow against the value of your property up to a set percentage
- For the duration of the loan term you’ll have to pay interest
- You’ll need to pass credit and affordability checks to qualify for a homeowner loan
Secured loan v Unsecured Loan?
A secured loan is a loan that’s secured against an asset. The asset needs to be something you own, and this is known as “collateral”. The collateral required may vary, depending on the amount you’re looking to borrow, because it needs to be enough to cover the loan amount. Common examples include your car or home. You need to be careful when taking out a secured loan, because failure to keep up with your repayments could see the loan provider repossess the collateral you offered. An unsecured loan doesn’t require collateral.
However, a secured loan usually allows you to borrow a larger amount, often much more than the £10,000 limit associated with unsecured loans. This means you could use your secured loan for things like major home renovations or buying a second property. Secured loans also tend to offer lower interest rates and longer loan terms, because the loan provider has your collateral to reduce the risk of their investment in you.
Who are secured homeowner loans suitable for?
This type of loan is generally for homeowners or mortgage payers who want to borrow a larger sum of money than they could with a standard personal loan.
Providers may want to see that you’ve built up equity in your home (you’ve paid off part of your mortgage or have a home that’s increased in value), so that you have funds available to pay off the loan and any outstanding mortgage debt, if you’re unable to make repayments.
You may also be able to obtain a further advance from your existing lender which would be cheaper in most cases.
If you want to use your home to raise funds, remortgaging is a possible alternative.
In some cases you may not wish to or be able to remortgage or borrow extra funds from your existing lender. This could be due to early repayment charges or not fitting on current criteria. A secured homeowner loan may be a suitable alternative.
Why it’s important to consider how much money you need and when will you need it
Knowing how much you need to borrow will help you decide where best to find that extra cash injection.
If you only need to borrow a small amount of money for a very short time, consider using your interest-free overdraft, if you have one. If not, it could be worth looking at different current accounts that offer this facility.
Credit cards with 0% interest on purchases could be worth a look, particularly if you need to buy something specific. As long as you pay back what you owe within the interest-free period (and make at least the minimum monthly payments on time), you can be smug in the knowledge that the credit hasn’t cost you a single penny extra.
If you need a larger sum of money, a personal loan could be the answer. You can usually opt to borrow a minimum of £1,000, with upper limits depending on the lender. Most will lend you up to £25,000, although some may go as high as £50,000.
Consideration should be given to the time left on your current mortgage deal, when do the early repayment charges end? If you could wait then you may get a better deal by remortgaging once your current deal is ending.
The best APRs (annual percentage rate – this is the amount of interest, plus any fees, you pay on top of your loan) are reserved for customers with the best credit ratings. That’s why when you apply for a loan, you need to know that the APR you see might not be the one you get, unless it’s labelled as a guaranteed APR.
Advice
Once again, if falls back to whether you take advice or not. In our opinion it is always worth taking professional advice when you are looking to raise funds against your property.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
SECURING SHORT TERM DEBTS AGAINST YOUR HOME COULD INCREASE THE TERM OVER WHICH THEY ARE PAID AND THEREFORE INCREASE THE AMOUNT PAYABLE.
